Chamber and committees

For the coming year, we have removed ring fencing from almost £1 billion of local government funding. In other words, there will be flexibility on nearly £1 billion that was previously ring fenced, which shows the direction of travel with local government. However, we want to do more. We have the Verity house agreement, which is a key element of an on-going journey.

The remaining areas of ring fencing are a bit trickier. We talked earlier about the need for us to move cautiously on teacher numbers, because we do not want those to go off a cliff. If that happened, questions would be asked about what the education secretary had done to avoid teacher numbers going off a cliff, when they are fundamentally important to reducing the poverty-related attainment gap.

We are on a journey to remove ring fencing and we have made good progress, but there are remaining areas on which we will have to move cautiously as we work with local government to achieve our joint aim, which is to further remove ring fencing.

It is an important point, and I will make it again: if there is less capital money, there is less money for NHS buildings, infrastructure or anything else. Reversing that cut is the solution.

In the meantime, we have said two things. First, we have said that the priority for the capital that the NHS has available needs to be essential maintenance. Secondly, we have said that, after 6 March, we will consider what the resources look like. We will look at the 6 March capital position, in relation to the UK Government and anything that we can do, depending on where we end up at the year end, to revisit that in the infrastructure investment plan.

Therefore, the current position is not the end of the story, but we could not have projects starting that might not be able to be taken forward. Using money to start projects that could not then be completed is not a good use of public money. We have therefore had to pause until we get that picture. In the meantime, we expect boards to take forward essential maintenance as a key priority.

I will come back to the council tax in a second, but I make the point that, in a budget where there is less money and the size of the cake is reduced, local government literally has a bigger slice of it, with an increase from 31 per cent to 32 per cent. That tells me that, within a difficult financial environment and settlement, local government has been treated reasonably fairly.

If you are talking about the council tax freeze in particular, or teacher numbers, I guess that there is a judgment to make. Local government will say that the £145 million for teachers should not be ring fenced and that it should be able to spend that money on whatever it wants. However, I suspect that your colleagues in the education portfolio would be the first to ask in Parliament why the Scottish Government had allowed teacher numbers to reduce and why we had removed the ring fencing from the money for teachers. Teachers are a really important part of reducing and eliminating the poverty-related attainment gap. They are not the whole story, as the convener pointed out earlier, but they are an important part of the story. If we put in £145 million to have more teachers, we expect local government to make sure that the teacher workforce is of such a size that it can help to deliver that closing of the poverty-related attainment gap.

The same applies to the council tax freeze. We have put £147 million into helping local government to deliver that. That money is for the council tax freeze, and I do not think that it would be acceptable to council tax payers for us to say to councils, “You can have the money and you can put the council tax up as well.” I do not think that that would wash with council tax payers. The money is on the table and it is for councils to decide. We have already seen a number of councils of all political colours make the decision to freeze the council tax. I know that it is also a policy of UK Labour for a council tax freeze to be supported.

In difficult financial times, we have been fair to local government, but it is a tough budget for the whole of the public sector.

It is difficult for the whole public sector.

The budget for further education is as I laid out previously—

Last year, it was springtime before those discussions were completed, and this year will be no different. Those discussions will be concluded in the springtime and colleges and universities will have the final agreement with the Scottish Funding Council.

We look to make sure that, when the SFC is giving us the advice and doing the analysis, any impact that our tax decisions may or may not have is built into the SFC’s assumptions. The SFC has described the change as “not economy moving” over its five-year forecast horizon.

I mentioned HMRC, which is helping us to develop the evidence base on priority areas of research interest, such as behavioural change, which includes things such as cross-border mobility. We will publish further information on that later in the year. That will be important, because HMRC is able to drill down more due to the information that is available to it. If other evaluation comes from independent analysis and from independent bodies that comment on this area, we always look at that as well. We draw from a range of sources. The SFC is fundamental, however, because it can analyse what we intend to do and whether, in its view, our proposal would have an impact on things such as behavioural change.

That evidence is being compiled. The SFC will do an analysis of what it believes the impact to be, and we will track it through real-time data from HMRC and look at the trends to see whether there is, in fact, any impact. That is the point that I am trying to make. HMRC is very important in all this, because it has the data on whether there is behavioural change and it will be able to disaggregate that in relation to the various bands of taxpayers.

We meet business leaders and representatives of the business community regularly. We talk about the impact on them of not just our income tax policy but a range of policies, including areas of UK Government tax policy, and they express a range of views. Do businesses want to pay more tax? Probably not, in the main, but that is the position with VAT, as well. Businesses are saying that they want changes to the VAT regime for the same reason.

With the levers that are at our disposal, taking NDR as an example, we had a very difficult decision to make around whether to put that resource into business tax cuts. The retail, hospitality and leisure sectors would, of course, have wanted us to make that choice, but I think that they also understand—certainly, the representatives of the hospitality sector that I met understood—that we had made a decision to invest that in public services. You cannot invest it twice, so they might not have agreed with the decision, but I think they understood why we had made it.

I am certainly happy to consider that. Again, the question comes back to timing. Should we hold such a debate before we know what the full picture will be following the spring budget on 6 March, or should we wait until we have the full picture? That is a judgment to be made, but I am certainly open to thinking about that.

It is important that we have an honest debate on the matter, because questions will undoubtedly be asked in Parliament about the implications for various projects. That is understandable, but the truth of the matter is that £1.6 billion cannot be removed from capital investment without its having an impact. If that is not reversed, there will be an impact—the question is where it will fall.